Daily Market Commentary 9th March 2022

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The fallout from the Ukraine war continues to drive extreme market volatility, due mainly to the impact of the sanctions, imposed upon Russia. Russia controls a great percentage of the world energy, agriculture and mineral exports and to sanction them, is to impose massive cost increases across the world. The sanctions will impact Russia, as they seek alternative suppliers (other than Europe for consumables), which are readily available from Asia. The real pain comes from Russia imposing restrictions on those raising sanctions, in the form of energy, agriculture, minerals etc.. Commodity prices are spiralling upwards, including fertilizers, minerals, wheat, oil and gas and these are all base necessities for the European countries. They are headed towards a major recessions, as massive cost imposts drive already rampant inflation and kill any sort of economic growth.

The financial sanctions also hurt Russia, but these will backfire on both the EU and the USA. The freezing of Russia’s Central Bank assets and expulsion from swift, will force Russia to move into the Chinese financial sphere, which is already functional and rapidly expanding. This will likely be more permanent and will bring new non-USD payment systems and flight away from the US as the world reserve currency. This could spell extreme danger for the US and the current global monetary system. The EU is now considering emergency debt issuance, in the form of bonds, to fund the energy and military crises. This will further expand the massive ECB balance sheet and fuel hyper-inflation and perhaps stagflation. The EUR bounced back to 1.0950, as Germany refused to sanction Russian oil and gas imports, while the GBP fell to 1.3130. The UK endorsed the US ban on Russian Oil and Gas, which will only massively punish them, as the US is not oil and gas dependent on Russia.

The phenomenal surge in commodity prices has supported the associated currencies, which will drive returns, but these countries are not immune to the global tumult. The Australian economy is massively enhanced by the surging mineral, agricultural and energy prices, allowing the AUD to be supported, despite a safe-haven move to the reserve. The AUD drifted off highs above 0.7300, while the NZD holds above 0.6800, supported by the RBNZ’s extremely hawkish plan on raising interest rates.

Hold onto your hats as more extreme volatility is to come.

Collinson & Co Contact